Comparative Economic Systems Mercantilism, Capitalism, Mixed-Economies, Socialism and Communism

Mercantilism The chief characteristics of Mercantilism include: Empire, A “Mother Country” & attending colonies Emphasis on gold and silver bullion. A positive balance of trade The Zero-Sum Game Command economic structure

Characteristics of Mercantilism Manufactured goods Mother County Colony Raw materials Cheap labor

Who Benefited Most From Mercantilism? Monarchs. Merchant capitalists. Joint-stock companies. Government officials.

Laissez-Faire Capitalism Market forces such as Supply & Demand drive the activity Government has a “hands off” policy in economic affairs Classical Economics is the domain of early laissez-faire theory

Adam Smith and The Wealth of Nations Smith, a Scot, was the principal architect of modern market economics. The metaphor he used to describe market forces was the “invisible hand.” He published his great work, The Wealth of Nations, in 1776.

The Wealth of Nations (1776)

The Principles of Capitalism include: The idea that “capital”, a factor of production that is not wanted for itself but for its ability to help in producing other goods, is a worthy means of generating wealth. A belief in “Private Property”; Emphasis on individual initiative, entrepreneurship, innovation, and competition;

Basic Capitalist Principles Goods and services are produced for profitable exchange. Human labor power is a commodity for sale  LABOR IS THE SOURCE OF VALUE. Goods & Service Businesses Households Consumer Spending Wages Labor & Investments

Basic Capitalist Principles Individuals seeking success are driven by self-interest  Profit Motive The Law of Supply and Demand Individuals who are free to pursue their self-interest will produce goods and services that others want, at prices others will be willing to pay.

Basic Capitalist Principles Law of Competition The competitive market system compels producers to be increasingly efficient, and to respond to the desires of consumers. Government should interfere minimally with the free and efficient workings of the market Laissez faire [“Leave things alone.”]

Some of the abuses of laissez-faire capitalism such as: Child labor Dangerous conditions Unfair labor practices Extremely long hours Resulted in calls for reform and regulation.

Pros and Cons of Capitalism Competition to provide goods and services keeps prices low Rewards hard work Provides choice Allows for the building up of wealth and possessions Consumers regulate the market Cons Exploits people who cannot compete Uneven distribution of wealth Creates a money-oriented society Constant economic growth may deplete the earth’s resources

Socialism Socialism is an economic system characterized by social ownership of the means of production and co-operative management of the economy. There are many variants of socialism, but because it requires collective ownership of property, the most dominant form is State Sponsored Socialism.

Socialism Ancient roots – Judeo-Christian belief in the common good, which takes precedence over individual desires Term “socialism” coined in 1827 by British socialist Robert Owen to describe his view of a cooperative new society.

Socialism’s principles egalitarianism or equality.  Humankind will be unified and cooperative, once wealth is owned and used for the common good. Capitalism exploits the very people who create society’s wealth. Moralism. Division of rich & poor is evil; capitalism is fundamentally unjust. Instead, the ideal future emphasizes peace, social justice and true liberty for all. 

Private Property and Socialism Private property not abolished, but the public should control the use of property and make necessities available to all. Individual rights not abolished but should complement other important values such as concern for others. Change can occur through an evolutionary process that uses democratic means.

Pros and Cons of Socialism All members share benefits Those who cannot contribute may still participate (disabled, elderly) Each member’s survival needs are met Equal distribution of wealth No socioeconomic classes Cons No incentive to work harder No competition means no reward to be innovative New members to the community (immigrants) are seen as competition for limited goods and services Higher taxes

Communism Communism is the most extreme expression of Socialism. It requires a violent Revolution. The Communist Manifesto and Das Kapital, lay out the principles Marx and Engels believe justify their call to revolution Friedrich Engels Karl Marx

Marx’s Goal:Create a utopia (an ideal state that does not exist) This is the symbol of Communism – The Hammer and the Sickle Hammer for the Workers Sickle for the Peasants – the farm labourers This is Karl Marx, the ‘Father of Communism’. People who believe in his ideas are called ‘Marxists’ This is his friend, Frederick Engels.

Marx’s key ideas 1. Slave system gave way to feudal economy 2. Feudal economy broke down with growth of manufacturing, towns, navigation & transportation, emergence of middle class 3. Industrial capitalism emerged, with only two classes: proletariat and bourgeoisie.

Industrial Capitalism – Negative Effects Destroys important human values, replacing even religious belief with naked exploitation. Undermines an individual’s sense of personal value in one’s work. Undermines human relationships; all relationships are based on cash. Destroys human freedom. The only freedom it protects is free trade.

Principles of Communism Labour Theory of Value: the value of a good is derived from how much labor went into its production. Alienation of Labor: Workers are separated from the fruits of their labor and alienated from the Bourgeoisie by exploitation. Class Struggle: In Marxist view of History, one class always exploits the others.

Ten Policy Planks of the Communist Manifesto Abolition of private property in land and application of all rents of land to public purpose. 2, A heavy progressive or graduated income tax. Abolition of all rights of inheritance. Confiscation of the property of all emigrants and rebels. Centralization of credit in the hands of the state, by means of a national bank with state capital and an exclusive monopoly. Centralization of the means of communication and transportation in the hands of the state. 7. Extension of factories and instruments of production owned by the state; the bringing into cultivation of waste lands, and the improvement of the soil generally in accordance with a common plan. 8. Equal obligation of all to work.  Establishment of Industrial armies, especially for agriculture. Combination of agriculture with manufacturing industries; gradual abolition of the distinction between town and country by a more equable distribution of the population over the country. Free education for all children in government schools. Abolition of children's factory labor in its present form.

The Worker’s Utopia In the end, a classless society with no more oppression or internal contradictions. People will be free to choose how they labor, and can be creatively productive. They will be able to live to their fullest potential. Consider the description in Marx’s Communist Manifesto in 1845:

Capitalism • most property & businesses are privately owned • banking system privately owned • free movement of both capital and labor • individual rights of citizens guaranteed by constitution • based on freedom & selfish interest of the individual • democratic forms of government • nationalistic • believes in supremacy of separate, sovereign nations Communism • most property & businesses are owned by government • banking system government controlled • strict government control of both capital and labor • rights of state/gov’t valued over individual rights • based on the “common good” and total equality • non-democratic forms of government • rejects nationalism • believes in future worldwide socialist government